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IRS Announces Moratorium on New ERC Claims

On Sept. 14th, the Internal Revenue Service (IRS) announced a moratorium through at least the end of the year on the processing of new claims for the Employee Retention Credit (ERC). It comes on the heels of an announcement earlier this month that the IRS will be slowing down the processing of existing claims as stricter compliance reviews are implemented. While payouts for existing claims will continue during the moratorium, they will be at a slower pace: the IRS is shifting from a standard processing goal of 90 days to 180 days, with a warning that it could take much longer if the claim faces further review or audit. The IRS may also seek additional documentation from the taxpayer to ensure legitimacy of the claim.

The ERC is a complex tax credit for businesses and tax-exempt organizations that kept paying employees during the COVID-19 pandemic either when they were shut down due to a government order or when they had a significant decline in gross receipts during certain eligibility periods in 2020 and 2021. Eligible organizations can file claims for 2020 timeframes through April 15, 2024, with the deadline for 2021 claims being April 15, 2025. The IRS reports that approximately 3.6 million ERC claims have been submitted thus far.

The agency is concerned about aggressive marketing that may lure ineligible taxpayers to claim the ERC. While the credit is real, the IRS indicates that many promoters are aggressively misrepresenting who can qualify for the credits. In many instances, the IRS is seeing businesses and organizations being misled by promoters into thinking they are eligible when they are not. Anyone who improperly claims the ERC must pay it back, possibly with penalties and interest.

While the ERC is complex and the process has been slow-moving, it has offered an important lifeline for a number of health care organizations. LeadingAge NY and LeadingAge National have offered educational sessions outlining the process and associated considerations stressing the need to work with a known and trusted tax advisor.

In the moratorium announcement, the IRS provides guidance and links to various resources, including a set of Frequently Asked Questions (FAQs) and a newly developed Eligibility Checklist. The following recommendations are provided based on individual circumstances:

  • If you are awaiting payment for a claim: For those who currently have an ERC claim on file, the IRS will continue processing these claims during the moratorium period, but at a greatly reduced speed due to the complex nature of these filings and the need to protect businesses from being improperly paid. Normal processing times could easily stretch to 180 days or longer. The IRS cautions that many applications will be facing additional compliance scrutiny, which means the payments could take even longer to be processed. While the IRS works on compliance measures during this period, the agency cautions businesses to expect extended wait times due to the large volume of claims and the complexity of the applications.
  • If you are considering filing a claim: For those considering filing a claim, the IRS urges businesses to carefully review the ERC guidelines during the processing moratorium period. The IRS urges businesses to talk to a trusted tax professional – not a tax promoter or marketing firm looking to make money generating applications that takes a big chunk out of the ERC claim. The new question and answer guide can also help. A careful review of the rules will show that many of these businesses do not qualify for the ERC, and avoiding a bad claim will avoid complications with the IRS.
  • If you have a pending claim, but are concerned about eligibility: For those who have filed and have a pending claim, they should carefully review the program guidelines with a trusted tax professional and check the new question and answer guide. For example, the IRS is seeing repeated instances of people improperly citing supply chain issues as a basis for an ERC claim when a business with those issues will very rarely meet the eligibility criteria. Under any scenario, if a business claimed the ERC earlier and the claim has not been processed or paid by the IRS, they can withdraw the claim if they now believe it was submitted improperly – even if their case is already under audit or awaiting audit. More details will be available shortly.
  • If you believe you received an erroneous payment: If a business has already received an ERC payment that they now believe is in error, the IRS will be providing additional details on the settlement program in the fall that will allow businesses to repay ERC claims. The settlement program will allow the businesses to avoid penalties and future compliance action. The IRS is continuing to assess options on how to deal with businesses that had a promoter contingency fee paid for out of the ERC payment.

Contact: Darius Kirstein, dkirstein@leadingageny.org, 518-867-8841